Lowering rental income could actually improve after-tax returns. Short-term rentals may become more expensive to operate. And holding vacant properties could carry a higher tax cost.
These are some of the potential consequences of Royal Decree-law 29/2026, published on 7 October, which introduces significant changes to Spanish property taxation.
The reform does more than change tax rules: it could reshape the decisions property owners and investors make.
1. Charge less rent and earn more? It may now be possible.
One of the most notable changes concerns personal income tax (IRPF) for residential landlords.
The new framework provides for reductions of up to 100% on positive net rental income, depending on factors such as the agreed rent, contract term, property location and tenant’s age.
In certain circumstances, lowering the rent by more than 5% could open the door to substantial tax relief.
Does increasing the rent always lead to a better return?
Not necessarily. In some cases, accepting a slightly lower rent could produce a more favourable result after tax. The key is to assess each contract and calculate the actual net return.
2. Short-term rentals: new rules, new costs.
From 1 December 2026, furnished residential rentals of up to 30 nights will generally be subject to 10% VAT, even where no hotel-type services are provided. An exception is contemplated for certain short stays within the owner’s habitual residence.
For holiday-let owners and short-stay operators, the impact goes beyond tax compliance. Pricing, invoicing, contracts and potential input-VAT recovery may all need to be reviewed.
In other words, the change could directly affect operating margins.
3. What if the property is left vacant?
The reform could also increase the tax cost of holding certain properties that are not rented out.
From 2027, imputed property income will be calculated using a progressive scale linked to the aggregate cadastral value of affected properties.
Municipalities will also have broader powers to levy property-tax (IBI) surcharges on certain vacant homes and tourist accommodation, subject to statutory requirements and local ordinances.
For owners of multiple properties, holding costs could become an increasingly important factor in overall portfolio returns.
4. New opportunities and obligations for investors.
The reform also introduces relief for tenants, extends the scope of reduced VAT for certain renovation and repair works, and changes the taxation of Spanish listed real estate investment companies (SOCIMIs).
For SOCIMIs, undistributed profits from residential letting may be subject to a special 25% levy, with reductions tied to affordable housing and other applicable requirements.
For institutional investors, portfolio composition, dividend policies and reinvestment decisions therefore take on additional tax significance.
A reform that calls for a fresh look at property strategy
What matters most is not simply the new percentages or tax rates. It is the broader shift: taxation will play an even greater role when choosing between long-term residential letting, short stays and holding property assets.
For landlords, property companies and investors, anticipating the changes and assessing the tax consequences of each decision will be essential.
Although the decree-law has entered into force, its continuation remains subject to the parliamentary validation process, which should be monitored.
At MDG Advisors, we believe effective tax planning is not just about understanding new legislation. It is about understanding how that legislation affects our clients’ financial and investment decisions.